Business investment set to contract at faster rate this year, report warns

Firms are left with no choice but to try and prepare for the possibility of leaving the EU on October 31 without a deal, a business group said.

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The British Chambers of Commerce report

Business investment is forecast to contract at a faster rate this year and recover more slowly in 2020 than expected in previous forecasts amid continued uncertainty over Brexit, a new report has predicted.

The British Chambers of Commerce (BCC) said firms were putting resources into contingency plans, such as stockpiling, rather than investing in measures aimed at economic growth, which is “simply not sustainable”.

Its growth forecast for this year was slightly upgraded, driven by the “exceptionally rapid” stock-building early in the year.

But growth will be more subdued in 2020 and 2021, said the BCC, adding that the continued Brexit impasse, including the growing possibility of a no-deal exit, was expected to “suffocate” investment activity over the near term.

The Brexit impasse, including the growing possibility of a no-deal exit, together with the high upfront cost of doing business & the running down of excess stock, is expected to suffocate investment activity over the near-term https://t.co/Dd2js9tF0spic.twitter.com/3NHOzurPU5

The BCC said its latest forecast was a warning sign that the next prime minister must set out a clear roadmap for how the political impasse in Westminster can be broken and an agreement reached to prevent further slowdown in the economy.

The chamber network also urged the next government to use the forthcoming Comprehensive Spending Review to confirm delivery of major infrastructure projects such as HS2.

The BCC forecast assumes that the UK avoids a “messy and disorderly” exit from the EU.

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Head of economics Suren Thiru said: “The revisions to our forecast suggest that the UK economy is likely to remain on a disappointingly subdued growth path for some time to come.

“The downward pressure on business activity and investment intentions from the unwinding of stocks is likely to be exacerbated by increasing cost pressures and Brexit uncertainty, slowing overall economic growth across the forecast period.

“The deteriorating outlook for business investment is a key concern as it limits the UK’s productivity potential and long-term growth prospects.

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“A messy and disorderly exit from the EU remains the main downside risk to the UK’s economic outlook as the disruption caused would increase the likelihood of the UK’s weak growth trajectory translating into a more pronounced deterioration in economic conditions.”

Director general Adam Marshall added: “While politicians are distracted, businesses are left with no choice but to try and prepare for the unwanted possibility of leaving the European Union on October 31 without a deal and transition period.

“Businesses are putting resources into contingency plans, such as stockpiling, rather than investing in ventures that would positively contribute to long-term economic growth.

“This is simply not sustainable. Business communities expect the next prime minister to quickly find a sensible and pragmatic way forward to avoid a messy and disorderly Brexit.”